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$\begingroup$Not as I understand it - to my mind I should be able to calculate an ROI from a knowledge of the transactional ROIs, no?$\endgroup$
– professorDanteJan 29 at 5:41

$\begingroup$The problem is the way you define investment, the margin is not your investment. What happens if the margin change or you get margin called, you might end up with a ROI below -100%. That's also why ROI is a poor measure for long short portfolios (infinite ROI because net investment is 0).$\endgroup$
– LlianeJan 29 at 9:36

$\begingroup$I would think it is your investment, for all intents and purposes, as you cannot use that margin for anything else. We could call it 'return on margin' for more clarity perhaps$\endgroup$
– professorDanteJan 29 at 18:01

1 Answer
1

I would argue that it makes no sense to include 3)in the calculation, since that position can only be valued at the point of inception, given the info you have provided.

For 1) and 2), you get the ROI as follows: on the STO, you collect a premium of 100 and pay a margin of 1000, i.e. net cash outlay of 900. When you do the BTC, you pay a premium of 50 and collect 1000 margin (assuming no moves on margin account). Thus you collect 950.

So with an initial investment of 900 which turns into 950, you get a ROI of 950/900=5.56%

$\begingroup$So you say you can't know the ROI of the position until the position is closed from the BTC? Can't really use that!$\endgroup$
– professorDanteJan 29 at 16:56

$\begingroup$well it would still be 5.56%. if you close out trade #3 at the same terms u entered into it (u have not specified anything), that would be zero pnl there, so no impact to ROI$\endgroup$
– ZRHJan 29 at 17:40